Dec. 13 (Bloomberg) -- The European Union’s regulator said
consensus is growing among governments on some elements of a
plan to limit the use in its market of certain credits issued by
countries that fail to adopt new carbon goals.

The European Commission proposed that emitters in the
bloc’s cap-and-trade will be barred from holding in their
accounts UN-sponsored Emission Reduction Unit offsets issued
after April 2013 in relation to carbon cuts made before the end
of 2012 in countries without emission targets for 2013-2020,
according to a statement updated late today. That would apply to
projects which are approved by UN regulators for issuance of
credits in a procedure known as Track Two.

European law allows companies in its emissions trading
system, or ETS, to use international carbon offsets, including
ERUs, as a cheaper form of compliance with their greenhouse-gas
reduction quotas.

The proposal was discussed by representatives of national
governments in the Climate Change Committee as a draft amendment
to the bloc’s carbon registry regulation, the commission said on
its website. It didn’t comment on another amendment it was
seeking in a draft of the regulation in October, which would bar
EU emitters from holding in their accounts ERUs issued after
2012 by countries such as Russia that generate the credits in a
procedure overseen by the government, known as Track One.

Track Two

“A restriction on Track Two ERUs would have an almost
negligible impact on EU ETS eligible volume,” Richard
Chatterton, an analyst at Bloomberg New Energy Finance in
London, said by e-mail today. “Nothing has been mentioned on
Track One which maintains the uncertainty over the future
eligibility of ERUs from that track, particularly from Russia.”

ERUs for delivery in December ended the day 12 percent
lower at 22 euro cents a metric ton on the ICE Futures Europe
exchange in London. They fell briefly to a record 15 cents
yesterday.

“A formal proposal will now be finalized by the commission
and submitted to the Climate Change Committee for a vote,” the
commission said. “As soon as it has been submitted, the
proposal will be posted on the Commission’s ETS website.”

Emission Reduction Units are generated under the UN Joint
Implementation program, which encourages investments in low-carbon energy by industrialized countries in other nations that
have emission-reduction goals under the Kyoto Protocol, whose
first period runs from 2008 to 2012. The second period will
start next year and end in 2020, the UN decided at a climate
summit last week in Doha.

Second Commitment

JI projects are hosted by some EU nations and countries
including Russia and Ukraine. While the EU agreed to adopt
targets under the second Kyoto commitment period, Russia
declined to sign up to a new set of goals.

UN Certified Emission Reduction credits for December, which
are generated under a different program and are not subject to
any restrictions under the commission’s proposal, recovered
earlier losses and closed 2.3 percent stronger at 44 euro cents.

The commission also proposed at the meeting today that 2012
allowances for airlines, which joined the EU carbon program this
year, will be carried over to next trading period starting 2013
as permits for aviation. That clarification was sought by
countries including the U.K., which wanted to close a loophole
that allows buyers of EU aviation allowances to convert them to
regular permits that can be used by factories and power plants
from 2013.